Month: July 2008

A Girl Named Florida

I’ve been reading Leonard Mlodinow’s The Drunkard’s Walk: How Randomness Rules our Lives.  The book covers the Monty Hall problem, Bayes’s Theorem, availability bias, the illusion of control and so forth.  If these are unfamiliar, look no further for an entertaining account.

On the other hand, I can’t say that I learned much I didn’t already know.  Nevertheless, I still enjoyed reading the book – it’s well written and filled with interesting nuggets (Did you know that the great mathematician Paul Erdos refused to believe that you should switch doors?).  If you teach probability theory or intro stats you will find lots of good examples to brighten up your lectures. 

One problem did intrigue me.  Suppose that a family has two children.  What is the probability that both are girls?  Ok, easy.  Probability of a girl is one half, probabilities are independent thus probability of two girls is 1/2*1/2=1/4.

Now what is the probability of having two girls if at least one of the children is a girl?  A little bit harder.  Temptation is to say that if one is a girl the probability of the other being a girl is 1/2 so the answer is 1/2.  That’s wrong because you are not told which of the two children is a girl and that makes a difference.  Better approach is to note that without any additional information there are four possibilities of equal likelihood for the sex of two children (B,B), (G,B), (B,G), (G,G).  If we know that at least one is a girl we can remove (B,B) so three equally likely possibilities, (G,B), (B,G), (G,G), remain and of these 1 has two girls so the answer is 1/3.

Ok, now here is the stumper.  What is the probability of a family having two girls if one of the children is a girl named Florida?

At first it seems impossible that knowing the name should make a difference.  Surely, the answer is 1/3 just as before?  After all, every child has a name.  But knowing the name does make a difference.  Here’s a hint, Florida is a rare name.

I don’t know how to title this post

Via Mark Thoma, Joseph Stiglitz makes lots of claims.  Here is one of them:

For a quarter-century, there has
been a contest among developing countries, and the losers are clear:
countries that pursued neo-liberal policies not only lost the growth
sweepstakes; when they did grow, the benefits accrued
disproportionately to those at the top.

He does not name the countries.  Is Chile supposed to be a loser?  Or does he have the more corrupt Latin American states in mind?  How about Ireland or for that matter the economic policies of Mrs. Thatcher?  Was it a mistake for so many states to drop communism?  How many African nations — the real losers — have adopted neo-liberal policies?  Do Singapore and Hong Kong count?

Presumably China counts as a winner and of course it has a relatively strong state.  Oddly some of the communists saw capitalism as building the economic superstructure for socialism and then communism.  In reality the nominally socialist and communist government of China built the public sector superstructure to support a later capitalism.

Here’s another claim Stiglitz makes:

One senior Chinese official was
quoted as saying that the problem was that the US government should
have done more to help low-income Americans with their housing. I
agree.

In my view, while the private sector is largely to blame for what happened, the U.S. government has, over the years, done far too much to encourage the housing sector.  I guess Stiglitz thinks it should have done even more.

I find the content of his essay difficult to understand, on a number of levels.

Markets in *everything*

Both the action and the substance, in fact:

The remote town of Musiri in the Tamil Nadu state has hit upon a unique idea to teach its residents proper hygiene: pay them money each time they use the toilet.

Users can make up to $0.14 a month to relieve themselves in a specially constructed toilet. Not a princely sum, but it’s extra cash flow that low-income residents can make just for answering nature’s call.

The government-backed program serves two purpose: It encourages people to discard age-old practices of urinating and defecating in the open, leading to diseases. And the waste product goes into research to test their effectiveness as fertilizers.

Here is the full story and thanks to Marco for the pointer.  One point is that both the income and substitution effects predict the villagers will put on weight.

Sentences to ponder

If one believes Grogger’s effects are causal, then investing in the
ability to not “sound black” looks to have a huge return – roughly of
the same magnitude as getting one more year of schooling.

Here is much more, by Steve Levitt, all of interest.  Two other points: "sounding southern" is almost as bad for your wages as is sounding black and blacks who "sound white" earn the same wages as whites, of course adjusting for education, work experience, and so on.

Should you buy a used car to be carbon-friendly?

Megan McArdle shows at least four hands:

The supply of used cars is pretty well fixed–they have to be in pretty horrible condition before they’re junked rather than resold for a pittance. So the correct calculation is not how much you will emit by driving one, but how much you will emit compared to the person who would have bought the car.

But then, that person would probably have bought another car. If they would have bought a Prius, you’ve simply swapped places. If they would have bought another car, you’ve increased demand for a less fuel-efficient option.

On the third hand, as far as I know most industry analysts still believe that Toyota breaks even, or loses money, on the Prius, and so the normal price signal sent by buying a car–"increase supply of that model"–may not operate. If the person who would have bought a used Corolla instead buys a new Corolla–or someone far down the purchase chain does–you’ve probably done more for the environment than you would by buying a Prius, because you’ve actually increased the supply of fuel-efficient cars.

In fact, it seems to me that the best option is to buy a used SUV and drive it very little. But I have a feeling that this would not give a potential Prius owner everything they are looking for in a car.

What is mystery ingredient X?

Arnold Kling writes:

I don’t think we have a recipe that says, "Take a child of two non-college educated parents, add primary education ingredient X, bake, and out comes a college-capable high school graduate." The mystery ingredient X has yet to be discovered.

Some Asian cultures or immigrant groups come close to finding this ingredient.  It involves total parental commitment to the educational ideal and a willingness to enforce the notion that a non-educated child is shaming the entire family, not just the child.  That said, I’m not sure that college education per se is the key here (and probably Arnold would agree; read his phrasing carefully).  If you can bake up some low rates of time preference, you’re coming pretty close to the real mystery ingredient. 

Onion Futures

There are none.

The bulbous root is the only commodity for which futures trading is
banned. Back in 1958, onion growers convinced themselves that futures
traders (and not the new farms sprouting up in Wisconsin) were
responsible for falling onion prices, so they lobbied an up-and-coming
Michigan Congressman named Gerald Ford to push through a law banning
all futures trading in onions. The law still stands.

And yet
even with no traders to blame, the volatility in onion prices makes the
swings in oil and corn look tame, reinforcing academics’ belief that
futures trading diminishes extreme price swings.

Amazing, onion farmers and Congress panic in 1958 with the Senate Committee arguing that

…speculative activity in the futures markets causes such severe and unwarranted fluctuations in the price of cash onions…[that a] complete prohibition of onion futures trading [is necessary] in order to assure the orderly flow of onions in interstate commerce…

and for going on fifty years onion futures are banned.  Makes me want to cry.

More here on the banning of futures markets .  (A report from 1956 indicates that the fluctuations at that time were due to an attempted swindle.)

Hat tip to Newmark’s Door

The young and super-wealthy go to therapy

Not long ago, a young titan of New York real estate sat in his psychotherapist’s office. An art collector, he was thinking of bidding about $8 million for a painting, and something about the deal made him uneasy.

The therapist thought the patient was merely trying to impress him. This happened whenever the man felt unsure of himself, which was most of the time.

But instead of trying to explore the patient’s anxiety, the therapist encouraged him to buy the artwork: “This is what you want; you should go get it.”

The therapy fees can range from $400 to $600 an hour and the therapists are often too impressed by their patients.  The whole article is interesting.

Stoking the fires

Ken Rogoff writes:

I am puzzled that so many economic pundits seem to think that the solution is
for all governments, rich and poor, to pass out even more cheques and subsidies
so as to keep the boom going. Keynesian stimulus policies might help ease the
pain a bit for individual countries acting in isolation. But if every country
tries to stimulate consumption at the same time, it won’t work. A general rise
in global demand will simply spill over into higher commodity prices, with
little helpful effect on consumption. Isn’t this obvious? Yes, there is still a
financial crisis in the US, but stoking inflation is an incredibly unfair and
inefficient way to deal with it.

In other words, if the initial shocks are real, boosting aggregate demand won’t have much of a positive effect plus it will worsen inflation.   Maybe it’s a good thing the stimulus package is too small to be very "effective."  Mark Thoma adds comment.  I am, however, puzzled by Rogoff’s distinction between a single-country stimulus package and the global combination of such packages.  If nominal stickiness is a binding problem in enough sectors, a large enough stimulus can work no matter how many countries do it.  If nominal stickiness is not a major binding problem (and I suspect this is the relevant case), then even a single-country stimulus plan will be ineffective.

Bargaining with your roommates

Joseph, a loyal MR reader, asks:

I recently leased my first apartment…with a friend who just graduated from college with me. It’s a nice apartment, and spacious, but it has one bedroom that is larger and nicer (better views, bigger closet, more windows) than the other.

We’re looking for the most equitable way to allot the good bedroom without resorting to cash transfers (too crass). We’ve come up with a few strategies so far:

1. Bid on the good room with chores (meaning the person who is willing to do the most domestic chores to compensate wins the auction and the room)
2. Best out of seven rocks-papers-scissors
2. Series of challenges submitted by close friends.

#1 seems like the best option we’ve come up with so far, but I’m afraid of winner’s curse. I don’t want a resentful roommate.

Do you think there’s a better solution?

Adam, another reader, asks, in a separate email, how friendly roommates should allocate the rights to joint furniture purchases.

I suggest the crass cash transfers!!